‘Can I consolidate a first and second mortgage in a HARP refinance?’by Tim Manni
As many of you know, there’s a section on HSH.com where you can submit your mortgage questions and Keith Gumbinger, HSH.com’s vice president and resident expert, will do his best to answer them.
Here’s a recent question and answer that I wanted to share:
Q: We are underwater on our Freddie Mac mortgage and a home equity loan as well. Can we combine the two together and refinance as one loan?
A: Unfortunately, the Home Affordable Refinance Program (HARP) doesn’t allow for cash-out refinancing; in essence, this is what would be required to produce the money to pay off the second mortgage… but you don’t actually have any equity to utilize. Neither Freddie Mac nor Fannie Mae would willingly expand the amount of debt owed under the terms of the first mortgage, since that would tend to make their losses more pronounced (while the second lien holder would be made whole).
Under the terms of HARP, your second lien holder is encouraged re-subordinate his loan, re-placing it in a second priority position after a refinance. While most will do so, they can deny this and demand the loan be paid off, and this has blocked some refinances from happening. Most second-lien holder will go along, though, since making the first mortgage more affordable can enhance their chances of being fully paid over time.
As you are making a change to your first lien, this might be a good time to dialogue with your second lien holder to discuss the status of your second lien.
There are programs such as 2MP (a second mortgage modification program) where there are incentives made available for lenders to participate in making the terms of your second mortgage more affordable.
Usually these kinds of programs come into play when the borrower is having trouble making payments, but the lender may be interested in making changes which might lessen their potential for loss down the road. If nothing else, it’s worth a call to your second mortgage holder to discuss options.